Double whammy
Investors are bracing for a possible double whammy, as the Federal Reserve will announce its monetary policy decision this afternoon, hours after the release of Consumer Price Index data for May. “Normally, when the CPI comes out on FOMC day, the FOMC meeting gets almost all the market weight,” said Standard Chartered analyst Steve Englander. But “we are not so sure this time.”
Inflation watch: CPI, scheduled for release at 8.30 am ET, is seen rising 0.1% M/M in May, easing from April’s 0.3% increase. On a yearly basis, CPI is forecast to climb 3.4%, holding steady from the prior month’s pace. Core CPI is expected to increase 0.3% M/M (vs. +0.3% in April) and 3.5% Y/Y (vs. +3.6% in April). Investing Group Leader Lawrence Fuller expects the bears to continue focusing on absolute numbers and miss the fact that the rates are moving in a “favorable direction.”
Fed expectations: Markets widely see the Fed maintaining rates at 5.25%-5.50% today, and will instead pay close attention to the FOMC’s dot plot and Jay Powell’s press conference to firm up their rate outlook. “With only four more FOMC meetings before year-end, the guessing is between one and two, but there is a slight chance of no cuts before 2025,” said SA analyst Michael Gray. A majority of SA subscribers think the Fed easing cycle will start in September.
Market outlook: The options market is expecting the S&P 500 (SP500) to go up around 1.3%-1.4% “in either direction” by Friday, J.P. Morgan projected, with the possibility of a CPI outcome being reversed by Powell’s press conference. Investing Group Leader David Lerner forecast “the potential for some selling that is significant enough to call for hedging the market.”
EV tariffs
The European Commission will provisionally impose additional tariffs of up to 38.1% on Chinese electric vehicle imports starting July, which could set off a global trade war as Beijing has warned of retaliation. The decision follows the EU’s anti-subsidy investigation into Chinese EVs that looked into whether extra tariffs were warranted. BYD (OTCPK:BYDDF) vehicles will see 17.4% additional tariffs, Geely (OTCPK:GELYF) 20% and SAIC Motor 38.1%. Tesla (TSLA) may be subject to an individually calculated duty rate, the commission noted. The new tariffs would be in addition to the bloc’s existing 10% duties on Chinese EVs, but are still lower than the 100% duties imposed by the U.S. (7 comments)
No deal
Paramount Global (PARA) dropped nearly 8% as its largest shareholder Shari Redstone ended merger talks between its parent company National Amusements and Skydance Media. The sticking point in the negotiations may have been a potential shareholder vote on the transaction. Redstone is now expected to pursue the sale of just National Amusements without trying to merge Paramount. Many buyers have expressed interest, including an investor consortium led by Hollywood producer Steven Paul and media executive Edgar Bronfman Jr., backed by Bain Capital. Sony (SONY) and Apollo (APO) were interested in bidding for Paramount, but their interest seems to have waned. (94 comments)
Chip sanctions
Washington is expected to widen sanctions on the sale of semiconductor chips and other goods to Russia, targeting third-party sellers. The move aims to cut off Russia’s efforts to avert Western sanctions amid its war on Ukraine. Russia has been sourcing chips from third-party sellers, often based in China, for use in missiles. “We’re going to continue to drive up costs for the Russian war machine,” National Security Council spokesperson John Kirby declared. “This week, we will announce an impactful set of new sanctions” targeting entities that help Russia procure goods for its war. Joe Biden will meet Ukraine’s Volodymyr Zelenskyy at the G7 summit on Thursday to discuss support for Kyiv.
